Deere Sets Goal of Doubling Sales by 2018

February 23, 2011

Deere & Co. aims to nearly double its annual sales to $50 billion by 2018 under a growth plan outlined Wednesday by Chairman and Chief Executive Samuel Allen.

Allen said he wants the farm- and construction-machinery manufacturer to deliver three times as much profit at normal operating volumes as part of his strategy. He described the plan as the first major change in the company's approach to business in a decade.

"The John Deere Strategy calls on us to aim higher, reach farther, move faster and perform better than ever before," Allen said in a speech at the company's annual shareholders' meeting in Moline, Ill. "Successfully executed, the plan will allow us to deliver much greater levels of value to our customers, investors and other constituent groups for years to come. It places even more emphasis on global expansion."

For the fiscal year ended Oct. 31, Deere earned $1.87 billion, or $4.35 a share, on total revenue of $26 billion. For fiscal 2011, Deere expects profit of about $2.5 billion on equipment-sales growth of 18% to 20%.

A key part of Allen's strategy is expanding the company's operating margin to 12% at the middle of the company's business cycle. At the peak of the company's last cycle in 2008, its margin was 11.8%. Coming out of the bottom of the cycle, the company notched a 14% margin in fiscal 2010.

Allen said the sales and profit improvement will be fueled by the expansion of the company's primary business lines in agricultural machinery and construction and forestry equipment.

Deere is the world's largest producer of tractors and harvesting combines. The company dominates global markets for high-horsepower farm machinery, and it has been boosting its presence in smaller equipment categories, particularly in India and South America.

Deere's sales of construction equipment, however, have largely been limited to North America, putting it behind competitors with more global sales bases, such as Caterpillar and Japan's Komatsu Ltd.

"We will be making major investments to give our construction operations a more global presence," said Allen, who was president of Deere's construction division before becoming chief executive in 2009. "Agricultural equipment is expected to remain our largest business sector. And it will certainly become more global in scale."

Deere is one of several foreign companies competing to fill the growing demand for farm machinery in China. Farm-machinery sales in China are forecast to grow 10% to 15% a year over the next decade as the country's agriculture sector becomes more mechanized and diversified, officials from the Chinese Agriculture Ministry said Wednesday. About 52% of Chinese farm jobs are now performed by machines, against 36% in 2006, and the government targets a 70% rate by 2020.

The new blueprint for Deere is Allen's attempt at the type of transformative strategy that propelled the company's performance in the 2000s under former Chief Executive Robert Lane. His "Shareholder Value Added" operating model focused the company on generating cash by driving out waste and inefficiency from Deere's operations and aligning equipment production to retail demand to avoid inventory overhangs.

"By all accounts, it worked exceedingly well," Allen said. "Now it's time to build on that strong foundation of achievement."

Source: Wall Street Journal